Russia’s Energy Monopoly in Central-Eastern Europe Under Siege

Publication: Eurasia Daily Monitor Volume: 14 Issue: 107

The question of where to secure dependable energy supplies for the countries of Central and Eastern Europe was notably broached during United States President Donald Trump’s July visit to Poland. During his meeting with regional leaders in Warsaw, Trump stated that fast-growing US natural gas exports to the Baltics and Central-Eastern Europe is possible. And he further added that these US exports could serve as political leverage to reduce the region’s energy dependence on Russia (TVNET, July 4). But in fact, the region has been moving toward greater energy security for some time through a number of strategically important policies and initiatives.

“What we are experiencing now may be called a fight for the position of the main natural gas distributor in Europe,” said Andris Sprūds, the director of the Latvian Institute of International Affairs. He identified two potential scenarios for natural gas supply: First, one of the main suppliers for Central and Eastern European states would be Germany, which itself receives most of its natural gas from Russia. In the second option, the regional gas distribution function could be taken up by Poland, which recently welcomed the first liquefied natural gas (LNG) supply vessel from the United States at its newly built LNG terminal in Świnoujście (Leta.lv, July 7).

Historically, Russia has been the largest supplier of natural gas to the Baltics and Central and Eastern European countries. But since the 2006 and 2009 Russian-Ukrainian “gas crises,” Russia’s invasion of Georgia in 2008 and its ongoing war against Ukraine, which began in 2014, the Baltic Sea countries’ confidence in Russia as a stable and trustworthy supplier declined sharply. As a result, the region has drastically boosted its search for alternative and more secure forms of energy production and imports.

Approximately five years ago, Gazprom (Russia) was still the only viable option for the Baltic States when it came to gas purchases. However, the decisiveness of the Lithuanian government in establishing an LNG terminal in Klaipėda, in 2014, has become a success story for not only the three Baltic States but also the other countries of the Baltic Sea region. Together with the Polish terminal in Świnoujście, Klaipėda highlights how regional dynamics are moving steadily toward greater security of supply as well as increased transit routes (Osw.waw.pl, April 13, 2016).

Following the enlargement of the European Union in 2004, all Baltic Sea littoral states (excluding Russia) now belong to the European Single Market. Moreover, the Baltics are part of the currently forming Energy Union, which aims to maintain a secure common energy space across the European continent. Improved interconnections and a successful diversification strategy—which were also beneficial to the creation of the EU common market—have already reduced regional dependency on any single energy supplier, especially Russia. For example, since 2015, Poland has the ability to import 85 percent of its gas imports from sources other than the east (Lai.lv, 2016, accessed July 30, 2017). And thanks to regional diplomatic efforts, the electricity markets of Latvia and the other two Baltic States have, since the beginning of 2017, been successfully integrated into the Nord Pool electricity exchange, and connected with Poland (Nordpoolspot.com, accessed July 30).

Regarding Europe-wide energy solidarity, however, there has been a contradiction between the countries of Central and Eastern Europe and several Western European countries that regard Russia as a reliable energy supplier—namely Germany and Italy. A serious bone of contention at present is the planned Nord Stream II pipeline, which will carry a further 55 billion cubic meters of Russian gas per year, along the Baltic seafloor, to Germany—entirely bypassing Poland and the Baltic States. Together with the countries of Central and Southeastern Europe and backed by the European Union, Poland is one of the driving forces behind the creation of a North-South Energy Corridor to overcome the current barriers between national energy markets in the region. These partnering countries, however, understand the importance of bringing Germany into the gas supply solidarity group with Poland. Warsaw has indicated that in the event that Nord Stream II is built, it could refrain from pursuing natural gas interconnection with Germany. For Germany, the planned pipeline is a commercial project, while Poland and some Central and Northern European countries consider it a political initiative with far-reaching negative consequences for their energy security. Moreover, the expansion of Nord Stream raises concerns in the region about Germany and Russia’s possible “friendship” in the future and how it could shape Berlin’s response to any possible crisis or instability involving Moscow in the Baltic Sea region (Lai.lv, 2016, accessed July 30, 2017).

In contrast with Nord Stream, two other regional natural gas pipelines are in the works, which have the potential to genuinely improve the energy security situation of the Baltic States. The first, the Gas Interconnection Poland–Lithuania (GIPL—set for completion in 2020), will finally physically link the Baltic States with the rest of the European gas pipeline network. The second pipeline will connect the Finnish and Estonian gas transmission systems. The European Commission has pledged to co-finance both projects using the EU’s Connecting Europe Facility (CEF) fund (Ec.europa.eu, accessed July 30).

Renewables are another source of energy currently being introduced in the Baltics. Unlike oil or gas, renewable sources of energy are generally not subject to political crises and their prices are not usually affected by international developments. Moreover, technology related to renewables is becoming cheaper. In many places, by the year 2027, solar and wind power plants will produce energy more cheaply than traditional fossil-fuel plants. According to a study published by the Latvian Institute of International Affairs, globally installed wind power will reduce energy generation costs over the next decade by 19 percent. Similarly, the cost of solar technology will be reduced by 26 percent (Lai.lv, 2017, accessed July 30).

The ability to supply energy when and where it is needed is a prerequisite for the success of any energy network. Whereas, reliance on a single supplier that cannot be fully trusted is entirely antithetical to such a goal. Central and Eastern European countries clearly understand that the greater the variety of the energy sources—not to mention deeper political and economic confidence between the partners—the more robust and secure the energy security system can become.

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